2015 Economics Written · PDF fileECONOMICS Written examination Thursday 29 October 2015 Reading time: 2.00 pm to 2.15 pm (15 minutes) Writing time: 2.15 pm to 4.15 pm (2

ECONOMICSWritten examination

Thursday 29 October 2015 Reading time: 2.00 pm to 2.15 pm (15 minutes) Writing time: 2.15 pm to 4.15 pm (2 hours)

QUESTION AND ANSWER BOOK

Structure of bookSection Number of

questionsNumber of questions

to be answeredNumber of

marks

A 15 15 30B 4 4 60

Total 90

• Students are permitted to bring into the examination room: pens, pencils, highlighters, erasers, sharpeners and rulers.

• Students are NOT permitted to bring into the examination room: blank sheets of paper and/or correction fl uid/tape.

• No calculator is allowed in this examination.

Materials supplied• Question and answer book of 24 pages.• Answer sheet for multiple-choice questions.• Additional space is available at the end of the book if you need extra paper to complete an answer.

Instructions• Write your student number in the space provided above on this page.• Check that your name and student number as printed on your answer sheet for multiple-choice

questions are correct, and sign your name in the space provided to verify this.

• All written responses must be in English.

At the end of the examination• Place the answer sheet for multiple-choice questions inside the front cover of this book.

Students are NOT permitted to bring mobile phones and/or any other unauthorised electronic devices into the examination room.

© VICTORIAN CURRICULUM AND ASSESSMENT AUTHORITY 2015

SUPERVISOR TO ATTACH PROCESSING LABEL HEREVictorian Certifi cate of Education2015

STUDENT NUMBER

Letter

2015 ECONOMICS EXAM 2

SECTION A – continued

SECTION A – Multiple-choice questions

Instructions for Section AAnswer all questions in pencil on the answer sheet provided for multiple-choice questions.Choose the response that is correct or that best answers the question.A correct answer scores 2, an incorrect answer scores 0. Marks will not be deducted for incorrect answers. No marks will be given if more than one answer is completed for any question.

Question 1An increase in the demand for aged-care facilities is most likely to occur when there isA. an increase in average life expectancy.B. an increase in the wages paid to staff in aged-care facilities.C. an increase in the cost of providing aged-care facilities and services.D. a decrease in government subsidies for aged-care facilities and services.

Question 2A less favourable movement in the terms of trade means thatA. export prices and import prices have fallen.B. export prices and import prices have risen.C. export prices have risen relative to import prices.D. import prices have risen relative to export prices.

Question 3The effect on the market for product A of a rise in the price of a substitute product B will be toA. shift the demand curve left and decrease the equilibrium price of product A.B. shift the demand curve right and increase the equilibrium price of product A.C. shift the supply curve left and increase the equilibrium price of product A.D. shift the supply curve right and decrease the equilibrium price of product A.

Question 4Which one of the following measures is not considered an indicator when assessing whether Australia’s economic goal of external stability has been achieved?A. the trend movement in the current account defi cit (CAD)/Gross Domestic Product (GDP) ratioB. the trend movement in the net foreign debt (NFD)/GDP ratioC. the trend movement in the trade-weighted indexD. the trend movement in the terms of trade

3 2015 ECONOMICS EXAM

SECTION A – continuedTURN OVER

Question 5The opportunity cost of diverting increased federal budget outlays to the funding of tertiary institutions from one fi scal year to the next would be measured byA. the difference, in dollar terms, in funding tertiary institutions from one year to the next.B. the satisfaction forgone by not allocating the additional federal budget outlays to the next best

alternative use.C. the difference in quality of educational outcomes achieved by tertiary institutions from one year to the

next.D. the total fi nancial cost of funding tertiary institutions compared to the fi nancial benefi ts achieved by the

national economy of a more highly educated labour force.

Question 6What is the most likely effect of a decrease in the tariff on an imported product?A. a loss of jobs for overseas suppliers B. a fall in the price of the domestic productC. a rise in the price of the domestic productD. an increase in employment in the domestic sector

Question 7Which one of the following would be an example of a structurally unemployed person?A. a ski instructor who is looking for alternative employment during summerB. an accountant who has left their job to travel overseas to gain more experience in their professionC. a cash register operator at a supermarket who has been replaced by self-service check-out machinesD. a construction worker who has not worked recently due to an economic downturn in the building and

construction industry

Question 8An expansion in the quantity supplied would be shown graphically as aA. movement up the supply curve.B. shift to the left of the supply curve.C. shift to the right of the supply curve.D. movement down the supply curve.

Question 9The average material living standards of Australian households may decline ifA. the average annual household disposable income rises at a faster rate than Consumer Price Index (CPI)

infl ation.B. CPI infl ation is increasing at a slower rate in Australia than the rate experienced by our trading partners.C. the rate of population growth is greater than the rate of increase in Real GDP over a sustained period of

time.D. negative externalities, such as pollution and urban congestion, are consequences of population growth

in Australian cities.


SECTION A – continued

Question 10Consider the following data for a hypothetical economy with similar macroeconomic goals to those of Australia.

Annual percentage change in Real GDP

Annual percentage change in

GNE

Annual percentage change in

CPI infl ation

Offi cial cash rate of interest

(%)

Year 1 2.75 3.00 2.3 4.50

Year 2 3.25 5.00 3.0 5.00

Year 3 4.00 6.75 3.7 6.25

Based on the trend movement in the economic indicators shown above, it is most likely thatA. the increase in offi cial interest rates is a signifi cant cause of the escalation in CPI infl ation and, with

higher national prices, it is logical that Gross National Expenditure (GNE) will be increasing more rapidly.

B. national incomes are growing at a relatively slow pace over the three-year period, contributing to the rate of change of GNE, while tightening of monetary policy has been required in an attempt to restore the economy to a state of non-infl ationary macroeconomic expansion.

C. steady growth of Real GDP has been achieved without creating any diffi culties for other economic goals or any challenges for macroeconomic policy management.

D. the rate of increase of GNE over the three-year period, combined with the trend movement in CPI infl ation, implies that increased import leakage will be occurring and that macroeconomic policy tightening is justifi ed.

Question 11If the market price of bananas suddenly increases due to poor weather conditions in Queensland, the impact on the market for banana cakes is most likely to beA. reduced profi tability in the production of banana cakes due to lower production costs and a consequent

decrease in the supply of banana cakes relative to constant demand in the market, leading to an increase in the market price of banana cakes.

B. improved profi tability in the production of banana cakes following the expansion of demand, in response to the higher prices that can be charged for banana cakes.

C. reduced profi tability in the production of banana cakes as the relative scarcity of a key factor of production increases the costs of production and leads to a decrease in the supply of banana cakes in the market.

D. improved profi tability in the production of banana cakes as the manufacturers can rapidly increase the market price to cover increased costs and maintain output at a constant level.


END OF SECTION ATURN OVER

Question 12Consider the following data that relates to the Australian economy.

Unemployment rate (%) per annum

Real GDP (%) per annum

Year 1 5 3

Year 2 6 1.75

Based on this data, it is most likely thatA. the Australian economy will have fewer idle resources at the end of Year 2 compared to the end of

Year 1.B. the Reserve Bank of Australia (RBA) may be more likely to raise interest rates in Year 2 as a

pre-emptive action against increased CPI infl ationary pressures.C. consumer confi dence will be falling as growth in average household disposable income may be slowing.D. aggregate injections of spending within the macroeconomy will have been stronger than aggregate

leakages during Year 2.

Question 13The operator of a tourist resort on Australia’s Gold Coast was quoted as saying that ‘a weaker Australian dollar will be good for business’.This is most likely because a weaker dollarA. means that Australian residents are less able to afford holidays in other countries, while residents in

other countries are more likely to take their holidays in Australia.B. leads to a lower rate of infl ation in Australia and this will encourage Australian residents to take

holidays in Australia.C. increases the value of Australians’ income and this will increase the demand for tourism.D. causes lower interest rates in Australia and this will stimulate spending by Australian residents on

tourism.

Question 14Each of the following consists of a change in economic policy and an economic outcome.In which case is the change in policy most likely to produce the outcome in the short term?A. increased interest rates and employment growthB. increased rates of personal income tax and a reduced CADC. increased government spending and reduced demand infl ationD. decreased government spending and a lower rate of unemployment

Question 15The distribution of income is likely to become more equitable in the Australian economy if the government were toA. move from a progressive to a proportional income tax system.B. increase the goods and services tax (GST) from 10% to 15%.C. increase spending on education and health.D. remove the capital gains tax.


SECTION B – Question 1 – continued

Question 1 (20 marks)a. Explain why balanced and steady growth in both aggregate demand and aggregate supply is

important in pursuing the achievement of one of the following economic goals:• low infl ation

OR

• equity in income distribution 4 marks

SECTION B – Written responses

Instructions for Section BAnswer all questions in the spaces provided.


SECTION B – Question 1 – continuedTURN OVER

b. Describe how an increase in aggregate supply might contribute to an increase in the rate of economic growth. 2 marks

c. Explain how one domestic demand-side factor and one global demand-side factor might have infl uenced aggregate demand in Australia in 2015. 4 marks

Domestic demand-side factor

Global demand-side factor



d. Explain how any two of the following government policies have been implemented over the past four years, or could be implemented, to increase aggregate supply in Australia:• microeconomic reform policy • immigration policy • environmental policy 6 marks

Policy 1

Policy 2


SECTION B – continuedTURN OVER

e. Explain how one feature of the relationship between monetary policy and budgetary policy in Australia in 2015 might have infl uenced aggregate demand and living standards. 4 marks



Question 2 (18 marks)a. Explain two differences between a perfectly competitive market structure and an oligopolistic

market structure. 4 marks

Difference 1

Difference 2



b. Explain the likely impact of a monopoly market structure on both prices and living standards. 4 marks

Prices

Living standards



c. Describe one example of a government action aimed at reducing market failure and improving the effi ciency of the allocation of resources. 4 marks



CONTINUES OVER PAGE



Oil prices have fallen signifi cantly over the past six months … Petrol prices have fallen by around 30 per cent since July 2014, which suggests that most of the price decline has been passed through to fi nal prices (given that oil accounts for 50 per cent of the fi nal price of fuel).

Source: RBA, Statement on Monetary Policy, February 2015, pp. 46 and 47

Global demand and supply – crude oil per barrel

50

100

D2 S1

E1

Q1 Q2

D1

S2

E2

price ($US)

quantity (barrels)

d. i. Explain the movement in the global equilibrium market price per barrel for crude oil as shown in the demand and supply graph above. 2 marks



ii. Outline the signifi cance of the price elasticity of demand for petrol upon household budgets, given the trend movement in petrol prices, as indicated in the extract on page 14. 2 marks

iii. Describe one reason why the Australian Government intervenes in the market for petrol paid by consumers and provide one example of how it intervenes. 2 marks



Question 3 (8 marks)On 3 February 2015, the Governor of the Reserve Bank of Australia (RBA) announced a change in monetary policy: ‘… the Board decided to lower the cash rate by 25 basis points to 2.25 per cent …’

Source: RBA, ‘Statement by Glenn Stevens, Governor: Monetary Policy Decision’, media release, 3 February 2015

a. Outline one economic factor that might explain why the RBA decided to lower the cash rate in February 2015. 2 marks



b. Analyse, with reference to the cash fl ow transmission mechanism/channel and the exchange rate transmission mechanism/channel, how cuts in offi cial interest rates might operate to assist in the achievement of the goal of full employment. 4 marks

Cash fl ow transmission mechanism/channel

Exchange rate transmission mechanism/channel

c. Outline one possible negative impact on the economy associated with lowering the cash interest rate. 2 marks



Question 4 (14 marks)

Budget aggregates 2014–2015 to 2016–2017

Estimates

2014 –2015 2015–2016 2016–2017

underlying cash balance ($b)(a) – 41.1 –35.1 –25.8

per cent of GDP –2.6 –2.1 –1.5

fi scal balance ($b) –39.4 –33.0 –23.4

per cent of GDP –2.5 –2.0 –1.3

(a) excludes net Future Fund earnings

Source: The Commonwealth of Australia 2015

a. Comparing the estimates in 2014 –2015 with 2015–2016, describe the change in the stance of budgetary policy between the two years. 2 marks



b. Outline the likely impact on budgetary outlays and budgetary receipts if the rate of unemployment in Australia continues to rise in 2015–2016. 4 marks



On 13 May 2014, the Treasurer announced that ‘unless we fi x this budget together, we will leave the next generation with a legacy of debt’.

Source: Australia, House of Representatives 2014, Hansard, Budget speech, Joe Hockey (Member for North Sydney, Treasurer), Appropriation Bill (No. 1) 2014–2015, 13 May 2014, p. 3596

c. i. Describe the link between government budget defi cits and the government/national debt. 2 marks

ii. Explain one reason why leaving ‘a legacy of debt’ may affect living standards. 2 marks


TURN OVEREND OF QUESTION AND ANSWER BOOK

d. Budgetary policy might operate to infl uence equity in the distribution of income.

Select an example of a discretionary change in budgetary policy announced in the 2015–2016 Budget and describe how this policy is likely to infl uence equity in the distribution of income. 4 marks


Extra space for responses

Clearly number all responses in this space.


TURN OVER


An answer book is available from the supervisor if you need extra paper to complete your answer. Please ensure you write your student number in the space provided on the front cover of the answer book. At the end of the examination, place the answer book inside the front cover of this question and answer book.

Documents

2015 Economics Written · PDF fileECONOMICS Written examination Thursday 29 October 2015 Reading time: 2.00 pm to 2.15 pm (15 minutes) Writing time: 2.15 pm to 4.15 pm (2